Second Circuit Mandates Arbitration For Title VII Class Action

The editors wanted to share this analysis, by Proskauer’s Employment Litigation and Arbitration Group, of the Second Circuit’s interesting recent decision requiring a Title VII plaintiff, even in a class action, to arbitrate her claims:

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On March 21, 2013, the Second Circuit issued its highly-anticipated decision enforcing an arbitration clause and holding that a Title VII plaintiff does not have a substantive right to proceed on a class-wide basis in arbitration or in court. Parisi v. Goldman, Sachs & Co., No. 11-5529-cv (2d Cir. Mar. 21, 2013).

Background

On September 16, 2010, plaintiff-appellee Lisa Parisi, a former managing director at Goldman Sachs who was terminated in November 2008, filed a putative class action against Goldman Sachs alleging pattern or practice gender discrimination in violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000e et seq. (Title VII) and the New York City Human Rights Law, Administrative Code of the City of New York § 8-107 et seq.

When Parisi was promoted to managing director in 2003, she signed a Managing Director Agreement that contained an arbitration clause requiring arbitration of “any dispute, controversy or claim arising out of or based upon or relating to Employment Related matters.” The agreement was silent as to arbitration of class claims.

In November 2010, Goldman Sachs moved to compel arbitration of Parisi’s claims pursuant to the Federal Arbitration Act (FAA), arguing that Parisi be required to pursue her individual claims in arbitration but, based on the Supreme Court’s decision in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010), Parisi could not pursue her class-wide claims in arbitration because the agreement was silent as to class claims. Parisi, however, claimed that individual arbitration was inappropriate because she did not agree to waive her substantive right to bring a Title VII pattern or practice claim against Goldman Sachs.

The District Court’s Rulings

In April 2011, relying on In re American Express Merchants’ Litigation, 634 F.3d 187 (2d Cir. 2011) (AmEx II), the magistrate judge refused to compel arbitration of Parisi’s individual gender discrimination claims, finding the arbitration clause unenforceable because enforcement would effectively operate as a waiver of Parisi’s substantive right under Title VII to pursue a pattern or practice discrimination lawsuit. The district court adopted the magistrate judge’s recommendations. Goldman Sachs appealed.

The Second Circuit’s Decision

On appeal, Goldman Sachs argued that there is no substantive statutory right to pursue a pattern or practice claim. Parisi, however, maintained that she had a substantive right to bring a pattern or practice claim and, because she could not proceed on a class-wide basis in arbitration, she must be permitted to do so in court.

The Second Circuit agreed with Goldman Sachs and reversed the denial of the motion to compel arbitration based on its disagreement with the district court’s holding “that a substantive statutory right to pursue a pattern or practice claim exists. . . .” Parisi v. Goldman, Sachs & Co., No. 11-5529-cv, slip op. at 3 (2d Cir. Mar. 21, 2013). In finding arbitration of Parisi’s claims appropriate, the Second Circuit relied on the Supreme Court’s liberal policy in favor of arbitration as set forth in several of the Court’s decisions, including CompuCredit Corp. v. Greenwood, 132 S. Ct. 665, 669, 181 L. Ed. 2d 586 (Jan. 10, 2012); AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1746 (2011); and Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25 (1991). The Second Circuit explained that this policy still applies when federal statutory claims are at issue unless the FAA’s mandate has clearly been overridden by Congress, and that arbitration clauses will be enforceable with regard to statutory claims “‘so long as the prospective litigant effectively vindicate[s]its statutory cause of action in the arbitral forum. . . .'” Parisi, No. 11-5529-cv, slip op. at 5 (quoting Gilmer, 500 U.S. at 28).

The Second Circuit reiterated the court’s view that an arbitration agreement that waives the right to bring a class claim should not be enforced where the clause interferes with the recovery of statutorily authorized damages or where the complexities of the litigation and the corresponding high costs of individual arbitration would effectively preclude a plaintiff from bringing such claims. See, e.g., In re American Express Merchants’ Litigation, 667 F.3d 204 (2d Cir. 2012) (AmEx III). Because Parisi did not object to arbitration on either of these grounds, the Second Circuit found no basis to preclude arbitration of her Title VII claims.

Significantly, the Second Circuit found that Parisi’s right to bring a pattern or practice claim is procedural, not substantive, because “[t]he availability of the class action Rule 23 mechanism presupposes the existence of a claim[.]”

Implications

The Second Circuit’s significant ruling means that agreements to arbitrate on an individual basis, with all of the benefits associated with the speedy and efficient resolution of disputes, will be enforced except in unusual circumstances.

The area of law governing class action waivers, however, is still developing and remains somewhat unsettled. For example, the Second Circuit’s decision in AmExIII currently is pending before the Supreme Court and could potentially weaken or conflict with the Second Circuit’s reasoning in Parisi. The Second Circuit also will have the opportunity to rule on a case similar to Parisi, but in the FLSA context, in the recently argued Raniere v. Citigroup Inc. et al., 11 Civ. 2448, 2011 U.S. Dist. LEXIS 135393 (S.D.N.Y. Nov. 22, 2011).

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